Tuesday, May 10, 2011

Obviously, there has been one story front and center in the world of REEs this week, that of Goldman Sachs’ analysis of the REE markets, and the financial medias rote recitation of said self-described analysis as fact. Judging by my inbox over the weekend, it’s safe to say that Malcolm Southwood and his band of merry MBAs have rankled the geologists that be, to no discernible end. Reactions seem to run the gamut from disbelief to contention to naked outrage.

Just to recap, the Goldman research note largely postulates that the global supply deficit of rare earth elements that has driven up prices more than tenfold since 2009 is likely to peak this year, and swing into a surplus by 2013, as Western companies start up new mines to compete with the Chinese firms that currently dominate the market.

Differing opinions (and there are many, mine included) have posited many shortfalls in Southwood et al’s analysis, ranging from an assumed lack of understanding (in said analysis) of the greatly varying properties and characteristics from one REE to another, to a disregard for the inherent difficulties in production of REEs, to (surprisingly plausible) conspiracy theories about perceived bias towards one particular US-based market leader, or the possibility that Goldman could itself undertake positions based on a ‘corrected’ market post-analysis.

On issues of a technical nature I defer to my esteemed colleague Jack Lifton, whose beautifully written long-form ruminations on this matter can be found here. He makes mention of the fact that there are only three non-Chinese companies producing significant quantities of high-purity metals or alloys (or both): Molycorp, Great Western Mineral Group, and Santoku. However, the high-purity-metals and -alloys capacity of all three combined is equivalent to less than 5% of the world’s total demand. The processes and infrastructure required to actually produce viable rare-earth products are numerous, daunting, and very time-consuming.

Ergo, the feasibility of non-Chinese operations drastically reducing our dependance on Mainland suppliers in the time-period suggested is not high. James Hedrick, President of Hedrick Consultants and former rare-earth commodity specialist for the U.S. Geological Survey, suggested I take another look at the US Department of Energy’s Dec 15, 2010 Critical Materials Strategy study, in which they forecast future demand, noting that they expect the future demand of certain REEs for wind turbines alone would require seven Molycorps.
These concerns escalate when we separate the REEs from a collective group into a packet of distinct products. Mountain Pass and Mt. Weld alone cannot possibly solve the supply v. demand conundrum that currently pertains to HREEs in such a short time. Less than 1% of Mountain Pass’ ore comprises of heavies, and approximately 2% at Mt. Weld. Dudley Kingsnorth, Executive Director of the Industrial Minerals Company of Australia, said, “It is quite clear that Goldman Sachs have oversimplified the Rare Earths Supply/Demand situation, and it is not as though there is a lack of information about the demand and supply for individual rare earths.”...MORE